Thursday, May 01, 2008

EU Economic Sentiment Indicator

Economic confidence across the eurozone is eroding rapidly, with increasing signs that the growth slowdown is hitting the region’s labour market, a closely-watched survey has shown.

The European Commission’s eurozone “economic sentiment” index has fallen sharply from 99.6 in March to 97.1 in April – the lowest level since August 2005. With the indicator regarded as good guide to growth trends, the unexpectedly steep decline pointed to a marked deceleration in economic activity.

The latest data could fuel speculation that the European Central Bank will cut interest rates later this year. Eurozone inflation data showed eurozone prices rising at an annual rate of 3.3 per cent this month – down from 3.6 per cent in March – suggesting that the worse may be over in terms of price pressures.

However, the ECB expects inflation to moderate only gradually over the next 18 months – and earlier this week the Commission forecast that in 2009 the average rate would still be above the central bank’s goal of an annual rate “below but close” to 2 per cent. The ECB is widely-expected to keep its main interest rate unchanged at 4 per cent when it meets in Athens on Thursday, despite cuts by the US Federal Reserve.

Eurozone countries show varying performances. Economic sentiment in Spain, which is at risk of a serious house price correction, has fallen to the lowest level since late 1993. But sentiment in Germany and France remains relatively robust – falling to the lowest levels since February 2006 and December 2005 respectively.